The importance of measuring KPIs when preparing for a Private Equity Transaction or M&A Event

It’s difficult to do justice to a subject so vast in a single post, and I won’t try. What I’ll aim to cover here are some foundational thoughts detailing the relationship between metric tracking and measurement inside an organization, and the related development of a pro-forma financial model in the go-to-market preparation for either a fund-raising, or a full sale mandate.

Regardless of how early we begin preparation, we always go to market with a fully articulated pro-forma financial model. We naturally need this to justify growth to a pure financial investor or acquirer, and equally to a strategic concerned with the financial viability of the firm in the medium to longer term (as their presumed holding period is indefinite). I’ll write separately about the overall process of getting to that model, which is itself almost always tremendously illuminating to the corporate executive. In justifying and articulating forward looking growth, we always seek to identify what we call the fundamental underlying ‘levers’ which support and — to a certain extent — dictate the bounds on that growth. These levers are almost always also the same metrics that the management team should be monitoring on a continuous basis to stay in touch with the health of the business. The catch is that they very often aren’t, at least not at the outset.

So in mandates where these metrics are not well understood, or are not continuously monitored, companies walk away with both a detailed operational model and the specification for a dashboard which ought to serve them well daily. They benefit regardless of whether they transact, as they’ll benefit from this foundational tool forever.

It’s also worth noting that buy side private equity has forever espoused the value of measurement, KPIs, and the associated management dashboards as fundamental tools in post acquisition value creation. Early engagement is a core tenet of ‘Transaction Advisory 2.0’; it’s no great leap to suggest that applying this acumen to increase value well before a company transacts is a significant benefit to current shareholders, and avoids leaving money on the table when these same constituents ultimately sell either all or part of their equity.

ValueStream Labs on the evolving investor model in private marketsGCA Closes First Major Transaction – A $36m Private Placement into BroadbandTV